Securities and Exchange Commission officials told CPAs Monday that they are considering allowing U.S. companies to provide some information, such as revenue, in International Financial Reporting Standards as a supplement to their U.S. GAAP financials on a voluntary basis.
Speaking at the American Institute of CPAs’ Conference on Current SEC and PCAOB Developments in Washington, D.C., SEC chief accountant James Schnurr said this would be one approach that the SEC is considering to allow some use of IFRS by U.S. companies.
Schnurr, who took on the position in October, indicated a desire last month by SEC chair Mary Jo White to make a decision soon on the long-delayed question of IFRS use by U.S. companies (see SEC Mulls Next Move on IFRS). His remarks at the AICPA conference proposed a new way ahead.
“As we focus our efforts on any potential paths forward, we are looking for feedback regarding other alternatives that might or should be explored regarding any further incorporation of, or alignment with, IFRS for domestic issuers,” he said in his prepared comments. “With this mindset, the pros and cons of any alternatives must necessarily start with what interest exists for further IFRS incorporation and what impact it could have on our reporting system, and therefore how it would affect investor protection. As one example, we understand that some domestic issuers may—now or in the near future—prepare IFRS-based financial information in addition to the U.S. GAAP-based information that they use for purposes of SEC filings. However, regulatory constraints may dissuade some issuers from providing this information, as current SEC rules would consider IFRS-based information to be a non-GAAP’ financial measure for a domestic issuer. Should IFRS-based information continue to be considered non-GAAP’ financial measures subject to the requirements for such measures, or should it be thought of differently? Under this line of thinking, issuers that do not believe IFRS-based information would be beneficial to investors would not be forced to undertake what we understand to be, in some cases, significant implementation costs.”
Schnurr said he hoped his remarks would serve as a starting point. “Based on the progress of our collective efforts, I am hopeful to be in a position in the coming months to commence discussions with the Chair and the Commissioners about the different alternatives for potential further incorporation of IFRS and the related issues/concerns of each alternative with the objective of reaching a recommendation on what, if any, further incorporation or use of IFRS by US registrants would be permitted or required,” he said. “And, of course, any rulemaking proposal that the Commission decides to consider would be subject to the normal notice and comment process.”
One of the SEC commissioners, Daniel Gallagher, spoke later at the conference and expressed cautious support for Schnurr’s proposal. He said, according to Bloomberg, that it would be “a market-based way to approach this.”
However, Gallagher also said that he had seen the "steam come out" of the work done by the International Accounting Standards Board and the Financial Accounting Standards Board to bring the standards closer together, and most U.S. issuers did not seem to be asking for IFRS now.
“If we allow for the issuers to put out this information, we can see if people want it,” he said.
SEC deputy chief accountant Julie Erhardt also elaborated on the proposal at the conference. “As more and more countries accept IFRS for statutory filings and/or base their national standards on IFRS, I think the incentives and opportunities for accountants outside the U.S. to be proficient in IFRS are increasing while the incentives and opportunities for them to be proficient in U.S. GAAP are decreasing," she said. "This may today incentivize multinational U.S. issuers to incorporate IFRS provisions into the overseas portion of their systems of books and records, yet at the same time they need to ensure that they can accumulate the information needed for their U.S. GAAP reporting needs.”
The Financial Accounting Foundation and the Financial Accounting Standards Board, which it oversees, issued a statement in response to Schnurr’s comments.
“We agree with Chief Accountant Schnurr that U.S. investors are best served by an independent standard setter that is first focused on the interests of those who participate in U.S. capital markets,” said spokesman Robert W. Stewart. “We also believe it makes sense to explore whether there are ways to remove barriers that might exist for companies that voluntarily choose to offer investors a second set of financial statements prepared in accordance with International Financial Reporting Standards. We believe that voluntarily providing IFRS information on a supplemental basis, subject to audit, SEC review and other regulatory scrutiny, could be an important tool in fostering further convergence of Generally Accepted Accounting Principles and IFRS.”
In a panel discussion later in the day, Schnurr was asked to elaborate on his comments, and he explained that under the proposal U.S. companies would be able to supplement their U.S. GAAP financial statements with IFRS. “A U.S. or domestic issuer would voluntarily be allowed to supply IFRS financial information,” he said. “My thinking around this is we’re not suggesting that if they take this path they would be required to file a complete set of IFRS financial statements.”
He said it could range from reconciliation of U.S. GAAP to IFRS to just providing selected financial data, such as revenues or net or gross margin.
“The key is it would be voluntary,” said Schnurr. “It will be interesting to see how many U.S. issuers would be interested.”
Schnurr was also asked by audience members about what the audit requirements would be. “Our objective is to expand the use of IFRS for U.S. issuers,” he said. “If we put an audit requirement on that, it would discourage people from doing that.”
However, he added that companies would not be allowed to provide misleading information, as they would be filing the information with the SEC. He and Erhardt were uncertain how companies would provide the IFRS information, whether in a Management Discussion and Analysis or somewhere outside the MD&A.
Erhardt pointed out that no foreign issuers who file their financials in IFRS with the SEC include supplemental information in U.S. GAAP. Schnurr said the proposal would clearly put U.S. GAAP at the top and would be focused on investor protection.
“As business continues to become more global, we are constantly monitoring what is happening around the world,” said AICPA chair Tommye E. Barie. “U.S. CPAs are helping organizations navigate a landscape that currently includes both GAAP and IFRS. But we also recognize the importance and value of comparable standards.”
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